British companies may face huge tax bills after experts warned a court ruling
could set a precedent that could override tax law IR35 in certain cases.
Last week, the Court of Appeal upheld a ruling in the Muscat vs Cable &
Wireless case could pave the way for contractors to shift their tax burden over
to their employers.
‘It is a frightening case for many big businesses in Britain because until
now they have been sheltered from tax and national insurance risks,’ said Anne
Redston, chairman of personal taxes at the Chartered Institute of Taxation and
an IR35 expert.
‘In the past employees have faced all the burden without the employee rights.
Now you could say they are being given those employee rights and the (financial)
burden is being removed,’ said Redston.
Francesca Lagerberg, tax director at Smith & Williamson and chairman of
the ICAEW’s tax faculty, said businesses with extensive contractor bases could
‘have employees where they didn’t think they had them’.
John Whiting, partner at PricewaterhouseCoopers, said: ‘The main concern is
that this precedent could affect companies which hire contractors through
Muscat vs C&W dealt with the issue that contractors engaged through their
own personal service companies might, in certain circumstances, be deemed
employees of the end client. The Court of Appeal rules that Muscat was an
employee of C&W and had employee rights. C&W said it couldn’t comment on
HMRC said: ‘We will be considering the decision of the Court of Appeal very
closely to determine whether it has any implications beyond employment law.’
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